A push to create a yuan trading hub in Canada is gaining momentum as countries around the world race to boost their share of trading in Chinese currency, which has grown dramatically along with China’s economy.
The Toronto Financial Services Alliance, a group made up of some of Canada’s largest banks and financial institutions, and a British Columbia business organization called AdvantageBC, announced on Wednesday that they have joined forces to promote Canada as a centre for yuan trading.
Instead of competing, the groups agreed to work together to build support for a single Canadian hub, seen essential to this country’s ambitions to increase trade with China.
Both groups realized that “we have greater likelihood of success if we do this as a collective,” said Janet Ecker, president of the TFSA.
Unlike other major currencies that trade freely on international markets, the yuan is tightly controlled by the Chinese central bank. Without officially sanctioned access to a supply of yuan, trade with Chinese companies can be expensive and complicated, so it’s not surprising that as Chinese global trade has exploded over the last few years, competition among countries for the right to set up a trading hub has also taken off.
This has “massive” potential benefits for Canada, said C.J. Gavsie, head of foreign exchange products at BMO Capital Markets and co-chair of the TFSA’s renminbi working group.
Canadian financial institutions, with the help of the Bank of Canada, have been working on the initiative for more than a year, and the ball is now in the federal government’s court to take the next step and engage the Chinese government, Mr. Gavsie said.
“There has got to be discussions between our government and their government,” he said. “The next step, which we hope will be soon, is that there is an agreement from both governments to undertake this initiative.”
A spokeswoman for the Department of Finance said Ottawa supports the plan and that “recent preliminary discussions” have taken place with Chinese officials. However, she declined to provide details saying only that that the negotiations are at an “early stage.”
“The exact details of the apparatus behind the hub will be worked out over time as negotiations progress,” Stephanie Rubec said in an email.
AdvantageBC is a non-profit business group whose members are a cross-section of the province’s economy, including Canfor Pulp International Ltd, Angiotech Pharamaceuticals, Salman Partners Inc., as well as most of the big Canadian banks.
The TFSA, whose mandate is to promote Toronto as a global financial centre, is a public-private partnership backed by the big banks and life insurers, the Canada Pension Plan Investment Board, the Rotman School of Management, and the Province of Ontario.
According to the TFSA, the yuan is the second-most popular currency in global trade finance “and is growing faster than any other currency in the world.”
“While Canada’s financial industry is headquartered in Toronto, much of the country’s Canada-China trade passes through Vancouver, making it critical for both jurisdictions to work collaboratively so that Canadian businesses are able to take full advantage of this initiative,” the two groups said in a statement.
If the groups are successful, Canada would be the first yuan trading hub in the Americas. Other yuan hubs include London, Frankfurt, Luxembourg, Hong Kong, Singapore, Taiwan and Sydney.
As it stands, Canadian companies buying or selling goods to China typically transact in U.S. dollars and as a result they end up paying multiple conversion costs. Not only is it expensive but for Canadian companies “it lacks transparency, meaning there is an inherent exchange rate margin that’s plugged into them and their suppliers,” said Mr. Gavsie.
Ontario, B.C. teaming up to rally support for Chinese yuan trading hub in Canada | Financial Post (external - login to view)